Pakistan’s government has committed to a phased deregulation of the country’s petroleum sector, a strategic policy shift designed to dismantle price controls, foster market competition, and ultimately pass on improved pricing and service quality to consumers. The decision builds on the weekly oil price review mechanism adopted during the Iran-US conflict.
Phased Transition from Controlled Pricing
The consensus emerged from the fifth meeting of a committee established by Prime Minister Shehbaz Sharif to overhaul the petroleum pricing mechanism. Chaired by Federal Minister for Petroleum Ali Pervaiz Malik, participants agreed on a gradual transition from the existing government-controlled pricing system to a deregulated, market-based model.
As part of the proposed reforms, sources indicate a recommendation to significantly reduce the crack spread for high-speed diesel from 70 dollars per barrel to a range between 35 and 40 dollars per barrel. Under the broader Inland Freight Equalization Margin (IFEM) reforms, a proposal has also been tabled to consolidate the number of petroleum depot points from 22 to 11.
Learning from Liberalization and HOBC Model
Government officials argued that Pakistan’s own experience provides a compelling case for deregulation. They pointed to the telecommunications sector, where liberalization replaced rigid government price controls with competition, leading to lower prices, better services, and greater innovation. A similar template is now sought for fuel.
Officials highlighted that prices for High Octane Blended Component (HOBC) fuel are already deregulated, enabling oil marketing companies to compete on pricing and service quality. The vision is to limit the government’s role to tax and customs duty collection, allowing competitive market forces to determine fuel prices for the benefit of consumers.
Transparency and Digitalization Drive
The meeting was informed that the Oil and Gas Regulatory Authority (OGRA) has activated a public dashboard on its website. This platform displays daily petroleum prices, the pricing formula, and relevant Platts data, a move expected to significantly strengthen market transparency. Committee members also appreciated a proposed daily pricing formula aimed at curbing unnecessary price fluctuations.
Minister Malik emphasized that oil marketing companies should be mandated to fully digitalize the petroleum supply chain. This step is intended to improve transparency, traceability, operational efficiency, and accountability across the sector.
Reviewing Market Structure and Windfall Tax
The committee also scrutinized the moratorium on establishing new oil marketing companies, assessing its impact on competition, investment, and market structure. Participants agreed that the IFEM Pool mechanism requires a comprehensive review. The issue of a windfall tax was also on the agenda, with a decision that the Ministry of Finance, the Federal Board of Revenue (FBR), and the Petroleum Division will hold consultations and present a report at the next meeting.
The high-level meeting was attended by National Coordinator NCMC Lieutenant General Zafar Iqbal, Minister of State for Finance Bilal Azhar Kayani, and other committee members, with sub-committees and advisory firm KPMG presenting recommendations and a comparative regional review of fuel prices and tax structures.
